Jobs - Lost, Changed or Gained

Global economy will benefit from the boost in productivity and growth. Machines can take on work that is routine, dangerous or dirty, and may allow us to use our intrinsic human talents more fruitfully. Though, to capture these benefits, societies will need to prepare for a complex workforce transitions

Over the last 43 years Super Auto Forge Pvt Ltd (SAF) focused on cold forging and earned a reputation for innovation. This has now started to pay rich dividends. Chairman Seetharaman pointed to the spectacular growth recorded over the last four years where revenues doubled from Rs 280 crore to Rs 560 crore, with a sizeable chunk (around two- thirds), coming from exports to US and Europe. The company which has five factories in and around Chennai and over 1100 skilled workers, has managed the 100 per cent revenue increase by increasing its employee count by just 100!

This record of SAF exemplifies the latest research findings on automation done by the McKinsey Global Institute. Excerpts,

Workforce transitions

Released in December 2017, the study focused on jobs lost, jobs gained and workforce transitions during the ongoing automation wave. The research examined work that can be automated by 2030 and jobs that can be created during the same period. Let us look at the key findings.

Automation, including artificial intelligence and robotics, will generate significant benefits in productivity. 60 per cent of occupations have at least 30 per cent of constituent work that could be automated. Though this will cause decline in some occupations, it will also create new ones that do not exist today.

Half of all work globally has the potential to be automated. Yet the proportion of work actually displaced by 2030 will be lower. The scenarios across 46 countries suggest that, on an average, almost 15 per cent of activities could be displaced by 2030. The workers that could be displaced are estimated at around 400 million. Advanced economies will be affected more by automation than developing ones due to higher wage rates thus offering economic incentives.

Even with automation, demand for work and workers could increase along with economic growth. Rising incomes and consumption, increase in healthcare for ageing societies, investment infrastructure and energy will create demand for work that could help offset the displacement of workers.

By 2030, 75 to 375 million workers (3-14 per cent of the global workforce) will need to switch occupational categories. All workers will need to adapt as their occupations evolve. Some of that adaptation will require higher educational attainment or spending more time on activities that require social and emotional skills, creativity, high level cognitive capabilities and other skills that are relatively hard to automate.

In advanced economies, demand for high wage occupations may grow the most, while middle wage occupations may decline. Income polarisation could continue in advanced economies. Increased investment and growth in productivity due to automation could spur enough growth to ensure full employment. If re-employment is slow, frictional unemployment will likely rise for the short term and wages could face downward pressure. These wage trends are not universal. In China, middle wage occupations such as service and construction jobs are likely to see the highest net job growth, thus boosting the middle class.

Business leaders must embrace automation benefits while addressing issues on worker transitions. Ensuring robust demand growth and economic dynamism is a priority. History shows that economies that are not expanding do not generate job growth. Mid-career job training will be essential as it will enhance labour market dynamism enabling re-deployment of workers. Current skill building, educational and workforce training models will pose major challenges. Income support for workers caught in the cross-currents of automation, would also demand priority.

46 countries, 90 per cent of Global GDP

The McKinsey Global Institute’s earlier research report released in January 2017 focused on automation and its impact on work activities. Thus, the recent report is a continuation of this research. The analysis covered 46 countries that comprised almost 90 per cent of global GDP. The focus was on six countries – China, Germany, India, Japan, Mexico and the US – that spanned different income levels. The research intent the report mention was not to forecast but to present a set of scenarios to serve as a guide.

Even as the report pointed to new technologies and increasing automation, these will improve our lives. These will substitute for some work activities humans currently perform. That means loss of jobs, a development of much public concern. But there are also the prospects for creating demand for millions of jobs in caring for others in ageing societies, raising energy efficiency and meeting climate challenges, producing goods and services for the expanding consuming class, especially in developing countries and higher investment in technology, infrastructure and buildings. A growing and dynamic economy – in part fuelled by technology itself and its contributions to productivity – would create jobs. New types of occupations that have not existed before would be created. This job growth (jobs gained) could be more than offset the jobs lost to automation.

The study estimates that 375 million workers globally will need transition to new occupational categories and learn new skills. Societal choices will determine whether the changes would make this workforce transitions smooth. The report states that the historical evidence on technology and employment was reassuring. Technology adoption can and often cause significant short-term labour displacement. But history shows that in the long run it creates multitude of new, even as it raises labour productivity.

There have been profound sectoral shifts in employment: first in agriculture and more recently in manufacturing. It cites instance in US where agriculture’s share to total employment declined from 60 per cent in 1850 to less than 5 per cent by 1970, while manufacturing fell from 26 per cent in 1960 to below 10 per cent today. Other countries have experienced even faster declines: one third of China’s workforce moved out of agriculture between 1990 and 2015. Such shifts can have painful consequences for some workers. The transition period was difficult for individual workers but could ease after substantial policy reforms.

New technologies have spurred the creation of more jobs than they destroyed and some of the new jobs are in occupations that cannot be envisioned at the outset. The report estimated that the introduction of the personal computer had enabled creation of 15.8 million net new jobs in the United States since 1980 despite considering jobs displaced. 90 per cent of these are in occupations that use the PC such as call centre representatives, financial analysts and inventory managers.

Productivity growth enabled by technology has reduced average hours worked per week and allowed people to enjoy more leisure time. In advanced countries the average work week has reduced by nearly 50 per cent since the early 1900s, reflecting shorter working hours and more paid days off. The growth in leisure has created demand for new industries, from golf to video games to home improvement.

Some people still worry that automation today will be more disruptive than in the past.

If technological advances continue apace and are adopted rapidly the rate of worker displacement could be faster. However, if many sectors adopt automation simultaneously, the percentage of the workforce affected could be higher.

The factors that can contribute to large creation of new jobs include healthcare from rising incomes and consumption, investments in infrastructure and energy and also new technology jobs.

Automation will impact differently developed countries and developing countries.

Impact on India

The fast growing developing country with relatively modest potential for automation over the next 15 years reflects low wage rates. The study finds most occupational categories would grow reflecting the potential for strong economic expansion. Employing large number of new entrants in formal sector jobs, will demand job creation on a much larger scale than in the past. Automation will make this challenge more difficult. But the MGI analysis suggests that India can create enough jobs to offset automation, with appropriate investments.

The analysis concludes that global economy will benefit from the boost in productivity and growth. Machines can take on work that is routine, dangerous or dirty, and may allow us to use our intrinsic human talents more fruitfully. Though, to capture these benefits, societies will need to prepare for a complex workforce transitions.

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